According to a report from Galaxy Digital Research, a New York-based financial services firm, venture capitalists (VCs) have invested more than $10 billion in crypto startups during the first quarter of 2022.
This is the largest ever quarterly investment in the crypto industry in a quarter. Interestingly, the sharp surge in VC deals in the crypto space is executed at a time when the crypto markets are trading about 50 per cent below their peaks.
The outcome of the report is surprising as investment from VCs has risen to peaks amid growing regulatory concerns and scepticism in the crypto market. Despite the rout in the market, valuations are witnessing a solid spike.
Hitesh Malviya, Founder, IBC Capital, said institutional money is betting on bitcoin mainly, which was considered a risk-free asset during the economic crisis recently.
“Institutions park their money in risk-free assets like gold, and bitcoin during market conditions like today where we are approaching a global recession,” he added.
Since, the fourth quarter of 2020, the VC money is flowing into the crypto theme. However, the number of venture deals has taken a hit, compared to last quarter, suggested the report. The deal count has remained over 500 since the last five quarters.
According to the report, the valuation and deal sizes in the crypto and blockchain space continue to outpace the broader VC landscape.
Web3, non-fungible tokens (NFTs), DAOs, Metaverse and gaming are key themes that emerged victorious to grab the largest capital investment and deal count, about 22 per cent share of the capital allocations, the report suggested.
However, trading exchanges or investment platforms are not far behind, which fetched about 21 per cent of VCs funds’ allocation. It was followed by infrastructure (14 per cent), custody (9 per cent) and mining (5 per cent).
The report concluded that despite the drawdown in the crypto space, venture capitalists are coming at a rapid pace in the sector. Meanwhile, pre-seed deals continue to decline despite the mass appeal of cryptos, it added.
Anticipating the future course of action from funds, Malviya predicted that institutions will keep buying Bitcoin and Ethereum on dips.
“But if we look at other crypto assets, I don’t think we will see any inflow from these participants, as other altcoins are purely driven by retail investors, and retail investors are currently bearish on the market,” he added.